IT Financial Explosions

NetApp Inc. shocked the financial world when it reported first quarter earnings and declared demand for its products is falling off the cliff. Meanwhile, Salesforce.com Inc. announced record second quarter results and projected it would be the first cloud computing company to exceed $2.1 billion in annual revenues. On a smaller scale UNIT4 NV saw its first half 2011 SaaS subscription revenues explode 53 percent and license revenues jump 22 percent.

Focal Points:

• NetApp stated its revenues for the first quarter of fiscal year 2012 totaled $1.46 billion compared to revenues of $1.15 billion for the same period one year ago. On a GAAP basis net income was $139.5 million as compared to GAAP net income of $150.7 million for the prior year's period. According to the CEO the company achieved record levels of FAS6000 systems sales, near record numbers of new enterprise customer wins, and the new E-series sales exceeded forecasts. All this good news was dampened by the CEO's assertion that business softened dramatically during the last few weeks of July under the weight of the debt ceiling crisis and macroeconomic uncertainty. The July growth rate ended up at about half of the company's May growth rate. In particular demand fell off the cliff in the US federal and financial sectors. These comments triggered a number of negative comments on enterprise technology stocks.  
• Salesforce.com, on the other hand, posted second quarter revenues of $546 million, an increase of 38 percent on a year-over-year basis. Subscription and support revenues were $509 million, a jump of 38 percent over the previous year's quarter. Professional services and other revenues were $37 million, an increase of 44 percent on a year-over-year basis. Despite all the positive revenue gains, Salesforce.com had a GAAP net loss of $4.2 million due to expanding R&D and sales and marketing expenses. The company added 6,300 net new customers this quarter, a 26 percent expansion year-over-year, which brings the total up to 104,000 users not including new customers from the Heroku and Radian6 acquisitions. Revenue for the company's full fiscal year 2012 is projected to be in the range of approximately $2.22 to $2.23 billion, according to company executives.
• UNIT4, a provider of business application software, released its first half 2011 results. Overall revenues increased by 13 percent to €226 million while software as a service (SaaS) subscription revenues expanded by 53 percent and license revenues grew by 22 percent. Net profit before goodwill improved by 49 percent to €20.7 million. The company also entered into an agreement to acquire Exie AS, a Norwegian software company that delivers "people driven" performance management solutions.

Experton Group believes the global economic decline, which has strained the budgets of financial institutions and governments, will constrain capital expenditures in a number of sectors. The reduction in purchasing will impact hardware sales and the implementation of major IT projects. The IT annuity businesses – financing, services and software – will feel the impact to a lesser degree. Moreover, the SaaS subscription business and other cloud computing options stand to gain customers as companies seek to satisfy business requirements without the outlay of additional capital. IT executives should expect an economic malaise and slow growth over the next few years and therefore find ways to meet business demands that are self-funding, minimize added outlays or reduce costs.